Sequoia Capital’s former China unit has accelerated its push for world offers, investing in celebrity-backed start-ups akin to Kylie Jenner’s Vodka seltzer firm, because it struggles to deploy its $9bn money pile in a sluggish home market and tightening US controls.
HongShan, which cut up off final yr from one of many world’s largest enterprise capital corporations amid rising geopolitical tensions, has ratcheted up its hunt for offers in Europe and North Asia after dealing with shrinking choices in China.
The Chinese language funding group has executed offers with celebrity-backed client teams akin to Jenner’s Sprinter, one of many US actuality TV star’s latest enterprise ventures, in addition to French ladies’s trend model Destree, co-founded by Géraldine Guyot, the spouse of LVMH founder’s son Alexandre Arnault, in accordance with a number of folks aware of the matter.
The worldwide push comes as HongShan, led by billionaire Neil Shen, broadly thought-about China’s high tech investor, has confronted frustration from some restricted companions over the tempo of dealmaking for its $9bn US fund, after elevating the cash two years in the past.
HongShan has each greenback and renminbi funds, that are managed by overlapping groups, however they’re more and more having to pursue separate methods. The group, which closed a contemporary Rmb18bn fund in March, is free to make use of this cash to spend money on sizzling areas in Chinese language tech akin to robotics and generative synthetic intelligence.
“They’re deploying the US fund however very slowly,” one restricted companion instructed the Monetary Instances.
HongShan has invested solely 10 to twenty per cent of its two later-stage funds, each sized at $3.6bn, in accordance with two folks aware of the matter. This offers it 4 to 5 extra years to take a position the remaining sum.
The group has been faster in deploying its earlier stage funds, the seed and enterprise funds, that are $480mn and $1.3bn, respectively — and have between 20 and 35 per cent invested, these folks added.
The shortage of high-growth home funding choices has been exacerbated by Washington’s transfer to tighten scrutiny of American funding in Chinese language high-end know-how.
In August, President Joe Biden signed an government order to ban US funding in Chinese language know-how with potential dual-use army software, akin to semiconductors, quantum computer systems and AI.
Chinese language funds have already pre-emptively been carving out their US LPs from offers that contain high-tech investments, in accordance with business insiders, leaving them with fewer promising sectors to again as much less delicate client corporations have been hit onerous from the weak financial system.
HongShan has as a substitute been utilizing its USD funds to double down on already well-established Chinese language start-ups, together with build up its place in ByteDance, whereas shopping for current shares within the fast-growing Instagram-like start-up Xiaohongshu.
Generally, LPs are eager to see early deployment as a result of it provides extra time for the businesses to develop in worth and for the funds to recoup their funding by IPOs or mergers. LPs usually nonetheless must pay administration charges on capital that has not but been known as.
Different US backers of HongShan are extra sanguine in regards to the tempo of dealmaking. “I’ve been an investor with Neil and the workforce from the start. They’re among the finest investments that we’ve made,” stated one, including that HongShan’s push for world offers was a “pure evolution” for a agency of its dimension and monitor report.
HongShan is focusing extra on Northern Asia and Europe after dealing with difficulties with US tech offers. This yr it was requested to dramatically cut back its stake in HeyGen, a number one AI video firm that originated in Shenzhen earlier than migrating to Los Angeles, over nationwide safety issues about Chinese language VCs being a major shareholder, the Monetary Instances reported.
In current months HongShan has opened a London workplace, hiring former Goldman Sachs banker Taro Niggemann, who’s charged with looking for web and consumer-related offers within the UK and Europe.
The transfer places it in additional direct competitors with its former companion Sequoia, which additionally has an workplace in London targeted on European start-up investments.
HongShan stated: “Since our inception in 2005, we’ve constructed a various portfolio spanning Japan, Korea, Southeast Asia, Australia and Europe, proving our technique thrives throughout world markets along with our portfolios in China.”
The Chinese language funding group is looking for client manufacturers within the west, which it might assist develop in Asia, because it seems to construct on the success of its 2021 funding in Ami Paris, which helped the French designer model increase in China.
HongShan participated in a $430mn fundraising spherical earlier this yr in UK on-line financial institution Monzo, alongside CapitalG, Google’s enterprise fund GV and Tencent. It additionally invested this yr within the German-based Inexperienced Vitality Origin, a battery supplies start-up.
It additionally holds a roughly 9 per cent stake in fast-fashion firm Shein, which is concentrating on a London itemizing if it receives approval from regulators in Beijing, in accordance with two folks aware of the matter.
HongShan additionally has plans to open a Tokyo workplace, in accordance with two folks aware of the matter, though one cautioned it was nonetheless within the early levels. HongShan declined to touch upon its Tokyo workplace plan.
Its push into Japan follows a rush of different Chinese language funds constructing a presence there, together with rival PE group Hillhouse and the Jack Ma-backed Yunfeng, which have each constructed a presence within the nation in current months for actual property offers.
In Japan, HongShan has invested in development administration software program start-up ANDPAD, AI contract administration start-up LegalForce and lithium-ion battery enterprise AESC, in accordance with one individual with direct data of the matter.
Extra reporting by Ryan McMorrow in Beijing
